The U.K. government's plans to potentially sell Channel Four Television Corp. could represent a good opportunity for a large U.S. buyer, but its value will depend largely on whether the strict rules regulating the public service broadcaster are loosened, experts said.

The U.K. digital, culture, media and sport department said June 23 that it would consult on a sale of Channel 4 to better position the property for future growth. Editorially independent but state owned, Channel 4 is a commercial U.K. public service broadcaster, alongside ITV PLC and ViacomCBS Inc.-owned Channel 5. Under the state, Channel 4 has a legal obligation to invest its earnings back into original programming and hit quotas on independent productions, among other requirements. It does not have the right to license programs internationally, making it highly dependent on advertising revenue.

Analysts said it is hard to know exactly how much Channel 4 would be worth to a private buyer until the U.K. government clarifies what type of obligations it will retain and whether its business model will change.

Potential price tag

"If you've got this chain around your neck, and you have to comply, including things like redistributing your profits from advertising into UK-only content … that's going to put you at a disadvantage," said Maureen Kerr, a managing director at FTI Consulting. "In any transaction, if you saddle anything with conditions, there'll be a price tag attached to that."

As part of the sale consultation, the U.K. government said it would review the broadcaster's remit but did not specify potential changes.

The last time a Channel 4 sale was reportedly being considered in 2016, media reports suggested the broadcaster would be worth about £1 billion. That is roughly in line with the £934 million in revenue Channel 4 recorded in 2020, 91% of which came from advertising.

By contrast, when Comcast Corp. bought Sky in 2018, it paid £29.7 billion, more than double Sky's 2017 revenue of £12.9 billion. Sky is a much larger commercial operation than Channel 4, as the largest pay TV and the second-largest broadband provider in the U.K.

Preserving the brand

While a loosened remit might boost Channel 4's sale price, analysts also warned that a buyer would have to walk a tightrope between commercially attractive programming and protecting Channel 4's reputation. Its obligation to produce left-field and diverse programming has helped the channel build a valuable and well-respected brand, especially among the valuable 16-34 demographic.

"Young people are very elusive for other broadcasters, but not for us," Channel 4 CEO Alex Mahon said at a June 22 parliamentary committee hearing.

Channel 4 is currently home to shows such as "The Great British Bake Off," "It's A Sin" and Channel 4 News. The dystopian series "Black Mirror" also originally premiered on the channel before being subsequently purchased by Netflix Inc.

Richard Berndes, an analyst at Kagan, a media research group within S&P Global Market Intelligence, said large potential buyers in the U.S. prefer more mainstream programming than Channel 4's traditionally niche shows. However, a move toward U.S.-style mainstream programming could weaken Channel 4's brand, he said.

Potential buyers

Berndes suggested Comcast or ViacomCBS could be "easy fits" for Channel 4 due to the lack of language barriers that continental European operators would face, and their existing place in the U.K. broadcasting market.

Kerr at FTI Consulting said Channel 4 could potentially be attractive to Discovery Inc., which is currently going through a $43 billion merger with WarnerMedia. The two brands garner similar reputations because of things like the type of high-quality factual programming Discovery produces, Kerr said.

Though competition from U.S. streaming services was cited by the government as a motivating factor for the potential sale, analysts said it is unlikely a U.S. streaming platform would be interested in buying Channel 4. The broadcaster is politically sensitive, and its sale is an emotional issue for the U.K. creative industry, making it less attractive for high-profile names such as Netflix, Amazon.com Inc. or The Walt Disney Co.

"They can all afford it, but I just can't see a specific commercial rationale, and I don't think any of them would want to get involved with the potential political controversy," Kerr said. "I don't think we'd have the same political issues with someone like Viacom."

Going digital

Analysts agreed that a buyer would have to invest heavily in the digital side of its business to keep up with the large streaming platforms. Channel 4 has already made inroads on this front, with its digital revenues consistently rising over the last five years. It also set out a target in its latest annual report for 30% of its total revenue to come from the digital side of the organization by 2025 — up from 17% in 2020.

CEO Mahon appeared bullish in the recent parliamentary committee hearing about Channel 4's ability to fend off both domestic and international competitors on the digital side. She noted that in 2020, 12.5% of views were on its digital platform, compared to "about" 2.9% on ITV.

Mahon also noted that Netflix enjoyed 14% subscriber growth in the UK in 2020, but that Channel 4's digital streaming views went up by 26%.

"These are big numbers, and they're up there with the biggest and most well-funded of the global tech companies," she said.